European Tire Report: When the going gets tough...

Despite a challenging global trading environment, European-based tire manufacturers delivered a remarkably solid showing, this year’s report on the global tire manufacturing sector shows.

Group Michelin remained the top tire maker in the world for the fifth year in a row: estimated fiscal 2023 tire sales of $27.5 billion leaving the French group substantially ahead of Tokyo-based Bridgestone, in second place with estimated sales of $25.5 billion.

Hanover, Germany-headquartered Continental was solid at No. 4 in the rankings with a slight increase in sales over the previous year to reach $12.5 billion.

Pirelli overtook Sumitomo Rubber Industries to edge up into fifth position: the two companies’ sales revenues almost even – $7.19 billion versus $7.17 billion.

The swing can be attributed largely to the currency exchange rate changes between the dollar and the yen and euro, which favoured Pirelli.

Nokian Tyres dropped seven spots with tire sales last year of $1.1 billion, as it lost $500 million or more in revenue due to its decision to withdraw from Russia.

The company should rebound next year as it moves into the next phase of ramping up production at its new tire plant in Romania.

Italian tire maker Prometeon Tyre Group moved to No. 20 on the list from No. 26, despite generating $200 million less in tire sales then the year prior.

In addition, starting with the 2024 Global Tire Rankings, there will be some new names to consider in the Top 75, most notably related to Russia and the withdrawal of western tire makers Bridgestone, Continental and Nokian in the wake of the Kremlin’s invasion of and continuing war with Ukraine.

Most notably, Russian energy giant P.J.S.C. Tatneft has created a new company, Ikon Tyres Co., to operate the plant in Vzevolozhsk, Russia, that it purchased from Nokian.

Ikon started commercial-scale production of Ikon-branded tires at the plant in late 2023 in preparation for putting the brand on the market in Russia this year.

Opened by Nokian in 2005, the plant has a rated capacity of 17 million radial passenger car and light truck tires a year. Nokian’s Russian operations generated $378 million in revenue in 2021.

At the same time, JSC Cordiant – backed by S8 Capital Holdings, a Russian diversified holding company – took over Bridgestone’s seven-year-old tire plant in Ulyanovsk, Russia, and Continental’s 10-year-old factory in Kaluga, Russia. The acquired plants are rated at 5 million and 3 million passenger and light truck tires a year, respectively.

Full-year prospects

Following a mixed set of results for the first six months (see table), European-based tire manufacturers were cautious about sales & earnings prospects for full-year 2024.

For the first half, Michelin linked its higher earnings to “strong” mix improvement and lower operating costs across all business lines, particularly for raw materials, energy and sea freight.

These factors offset negative impacts including high levels of Asian tire imports in replacement markets, a negative price effect from contracted price indexation and a “sharp downward cycle” in certain OE markets.

Nevertheless, regarding full-year prospects, Michelin was sufficiently encouraged to maintain its previously issued earnings guidance: segment operating incomes above €3.5 billion at constant exchange rates.

Continental AG’s Tires business, meanwhile, posted a 17% year-on-year increase in half-year earnings despite a dip in OE sales due to “weak vehicle production.”

By contrast, sales in the passenger car replacement tire business were up year-on-year, particularly in Europe and the Asia-Pacific region.

In the commercial vehicle tire business, sales figures were lower in the reporting period than in the previous year, the German group reported.

For the full fiscal year, Continental adjusted an earlier forecast for its Tires business to reflect lower estimates for automotive production: sales now projected to come in at €13.5-14.5 billion, down slightly from the previous estimate of €14.0-15.0 billion.

For its part, Pirelli reported stable revenues and a 4.2% rise in earnings for the first six months, driven by “solid commercial performance and efficiencies.”

Sales of high-value products, including large rim-sized tires, represented 77% of total sales, up from 74% in the first half of 2023, said the Milan, Italy-based tire maker

Efficiencies delivered a positive contribution of €71.4 million which offset input cost inflation of €68.3 million during the six-month period.

Pirelli noted the positive contribution of price/mix (#60.4 million) and volumes (€23.6 million), though 4.6% organic growth was almost entirely offset by the impact of forex and “hyperinflation” in Argentina and Turkey.

A reduction in the cost of raw materials had a positive effect of €36.3 million, partially offsetting the negative €62.3 million forex impact.

On its full-year outlook, Pirelli said the global car tire market should stay “flat” this year, though the high-value segment is set for growth of seven percentage points year-on-year.

In particular, in the 18-inch & larger tire market, OE volumes are expected to grow at “mid-single digit” levels, mainly due to demand in the APAC region.

Replacement volumes for the 18-inch and up segment are set to grow at “mid/high single digit” levels, mainly led by demand in “all high-value regions.”

In the standard segment, 17-inch & smaller, expectations are for weaker demand compared with the previous year.

During the first half, Nokian Tyres noted a €20-million impact from the Red Sea crisis and strikes in Finland causing lost production, shipment delays, and increased logistics costs.

Business momentum increased in the second quarter, net sales lifting 11.2% year-on-year to €324.6 million, with ‘segments operating profit’ at €20.1 million (€15.2 million in Q2/23) and operating profit reaching €8.4 million (€9.5 million in Q2/23).

Net sales of passenger car tires increased by 16.1% year-on-year to €331.9 million in the first half and by 23.7% to €188.8 million in the second quarter.

Net sales of heavy tires fell 15.0% year-on-year to €115.3 million in the first half and were down by 10.7% to €60.2 million in the second quarter.

Nokian went on to issue “unchanged” guidance for full-year 2024: net sales with comparable currencies and ‘segments operating profit’ expected to grow “significantly” versus the prior year.

“In April–June 2024, our net sales increased, clearly driven especially by central Europe,” commented Jukka Moisio, president and CEO.

“Sales growth in passenger car tires continued as a result of improved product availability and higher sales volume,” added the Nokian leader.

A weak OE market continued to impact ‘heavy tyres’ net sales, while ‘segments operating profit’ improved on sales volume growth and lower raw material costs.

“The car and tire market continues to be demanding due to economic uncertainties and low consumer confidence, Moisio further pointed out.

Due to seasonality, the tire maker expects “sales growth and [higher] segments operating profit to be generated in the second half of the year.”